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BorgWarner’s third-quarter revenue of $3.5 billion missed the consensus, although the estimate also rounded to $3.5 billion. Adjusted earnings per share, as counted by the consensus, were $1.39, above the $1.24 estimate.
Revenue fell from $3.6 billion a year earlier. In its filing, BorgWarner attributed the decline partly to lower estimated light-vehicle production and reduced Battery Energy Systems sales. Battery segment sales fell 41%, primarily because of lower demand in Europe. PowerDrive Systems sales rose 21%, with the company citing favorable volume, mix and new business, primarily in Europe, as well as customer recoveries.
Gross margin rose to 19.0% from 18.5%, while operating margin increased to 8.66% from 6.91%. Diluted earnings per share rose to $1.14 from $0.73. The filing said the effective tax rate declined partly because certain prior-year non-deductible expenses did not recur.
Free cash flow was $191.0 million, compared with $266.0 million a year earlier. On the call, CFO Craig Aaron said the company repurchased $175 million of shares and paid $35 million in dividends during the quarter.
| Q3 FY2026 | Q3 FY2025 | Change | |
|---|---|---|---|
| Revenue | $3.5 billion | $3.6 billion | −2.90% |
| Diluted EPS | $1.14 | $0.73 | 56.0% |
| Gross margin | 19.0% | 18.5% | 0.5 percentage points |
| Operating margin | 8.66% | 6.91% | 1.8 percentage points |
| Free cash flow | $191.0 million | $266.0 million | −28.2% |
| Against the consensus | Reported | Consensus | Result |
|---|---|---|---|
| Adjusted EPS | $1.39 | $1.24 | Beat by 12.1% |
| Revenue | $3.5 billion | $3.5 billion | Missed by 0.64% |
Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.
What management said on the call
CEO Joe Fadool said light-vehicle eProduct sales grew 33% in the quarter, primarily because of growth in Europe. Excluding the decline in Battery Energy Systems, he said organic sales were down modestly and roughly in line with the decline in global production.
Fadool highlighted nine business awards across combustion, hybrid and electric-vehicle products. They included BorgWarner’s first award for an aluminum-wire electric motor from a Chinese automaker and an inverter award for future battery-electric vehicles. He said the aluminum-wire motor reduces wire weight and cost compared with a conventional copper-wire motor.
On industrial products, Fadool said construction of the turbine-generator assembly plant was complete, system certification was underway and production trials were expected by year-end. Asked about turbine-generator demand, he said it was too early to provide more detail on its trajectory and that he would try to do so in early 2027.
Fadool said BorgWarner had shipped microgrid-inverter samples to seven customers and begun quoting its first major customer. Asked how the product relates to its automotive business, he said BorgWarner was using light-vehicle technology and planned to reuse many automotive suppliers. He also said the energy-storage system remained on track to be production-ready in 2027.
Discussing industrial program agreements, Fadool said: “We generally see some of the current political environment as possibly slowing the finalization of some of the program awards or program agreements.” He added that he saw the issue as short-term and no change in long-term demand.
Asked about costs, CFO Craig Aaron said, “We are seeing some inflation, especially on the electronic side of our business in 2026.” He said the company expected to manage it within its incremental conversion for the year and would watch costs into next year.
For the fourth quarter, Aaron said revenue would be closer to $3.43 billion, reflecting industry production. He expected a mid-teens margin decrement on the lower revenue and $10 million in industrial research and development. He also said fourth-quarter share repurchases were expected to match the $175 million spent in the third quarter.
Guidance
BorgWarner now expects 2026 sales of $14.0 billion to $14.2 billion, compared with its previous $14.0 billion to $14.3 billion range. CFO Craig Aaron said the change reflected a narrowing of industry production expectations: the company now expects its weighted end markets to be down 1% to 2%, versus its previous flat to down 3% assumption.
The company raised its adjusted earnings outlook to $5.20 to $5.35 per diluted share from $5.05 to $5.30. Aaron attributed the increase to third-quarter and planned fourth-quarter share repurchases and a lower expected full-year effective tax rate.
| Metric | For | Guide | Previous guide | Change |
|---|---|---|---|---|
| Free cash flow | FY2026 | $900.0 million–$1.1 billion | — | New |
| Operating cash flow | FY2026 | $1.6 billion–$1.7 billion | — | New |
| EPS, non-GAAP | FY2026 | $5.20–$5.35 | — | New |
| EPS, GAAP | FY2026 | $4.65–$4.84 | — | New |
| Operating margin, non-GAAP | FY2026 | 10.7%–10.9% | — | New |
| Operating margin, GAAP | FY2026 | 9.30%–9.60% | — | New |
| Research and development, Industrial | FY2026 | $10.0 million–$15.0 million | — | New |
| Revenue, Battery Energy Systems | FY2026 | −$250.0 million | — | New |
| Revenue growth, Organic | FY2026 | −4.00%–−2.50% | — | New |
| Revenue | FY2026 | $14.0 billion–$14.2 billion | — | New |
| Operating margin, Turbine Generator Non Gaap Incremental | FY2027 | BorgWarner expects mid-teens incremental conversion in the turbine generator’s first launch year, FY2027. | — | — |
| Revenue, Turbine Generator | FY2027 | $300.0 million | — | New |
| Revenue, Automotive | FY2027 | BorgWarner expects modest growth above market in its automotive business in FY2027. | — | — |
| Share repurchases | Q4 FY2026 | BorgWarner expects Q4 FY2026 share repurchases to match its Q3 level. | — | — |
| Research and development, Industrial Incremental | Q4 FY2026 | $10.0 million | — | New |
| Operating margin, Non Gaap Incremental | Q4 FY2026 | BorgWarner expects a mid-teens decremental margin on lower revenue in Q4 FY2026. | — | — |
| Revenue | Q4 FY2026 | $3.4 billion | — | New |
| Operating margin, Powerdrive Systems Non Gaap Incremental | FY2026 | BorgWarner expects mid-teens year-over-year incremental conversion in PowerDrive Systems in FY2026. | — | — |
| Revenue growth, Powerdrive Systems | FY2026 | 20.0% | — | New |
| Research and development, Industrial Incremental | FY2026 | $10.0 million–$15.0 million | — | New |
| Revenue, Battery | FY2026 | BorgWarner expects its battery business sales to decline in FY2026. | — | — |
| Revenue, Light Vehicle | FY2026 | BorgWarner expects its light vehicle business to perform broadly in line with its weighted market in FY2026. | — | — |
| Revenue, Growth Over Market | FY2027 | BorgWarner expects its bookings to support improved growth relative to its market across its portfolio in FY2027. | — | — |
| Bookings, Battery | FY2026 | BorgWarner expects to receive battery awards in FY2026. | — | — |